WASHINGTON — Student loan interest rates will go down for the next school year under a deal announced Thursday in the Senate. A vote is expected early next week.

Instead of a fixed rate set by Congress as in the past, the rates for college and graduate school will go up and down with the market. They will be set once a year based on the Treasury’s 10-year borrowing rate, plus a percentage to offset costs of the loan program.

The Congressional Budget Office estimated the new formula would save $715 million over 10 years, compared with the current law.

“It’s a good day for students, it’s a good day for Congress and it’s also good day for taxpayers, because I think we’ve done this in a very responsible way,” said Sen. Richard Burr, R-N.C., who backed the market-based plan and was one of senators who negotiated the bipartisan agreement over recent weeks.

Critics, however, noted that under the plan, student loan rates are projected to be higher within the next five years than under current law. Increasing numbers of American students have gone into debt as the cost of higher education escalates.

Sen. Tom Harkin, D-Iowa, chairman of the Senate Health, Education, Labor and Pensions Committee, said his committee would work on a new version of the Higher Education Act “so we can get a handle on the skyrocketing costs to students and families.”

Under the new loan plan, undergraduates, the majority of borrowers, will pay 3.86 percent on subsidized and unsubsidized loans this year. The government pays the interest on subsidized loans while a student is in school at least half time and for a six-month grace period afterward.

Under current law, rates on subsidized loans doubled from 3.4 percent to 6.8 percent on July 1. Unsubsidized loans already were fixed at 6.8 percent. Subsidized loans are limited, and most students take out both types.

The new plan pegs interest rates to the 10-year Treasury borrowing rate, plus 2.05 percentage points for all undergraduate loans, an additional 3.6 points for graduate loans – making them 5.41 percent – and an additional 4.6 points for PLUS loans.

PLUS loans are another form of loans used by graduate students or by parents for their children in college. They would cost 6.41 percent under the plan for the upcoming year.

The rates are fixed for the life of the loan. In addition, rates for undergraduate loans would be capped at 8.25 percent, graduate loans at 9.5 percent and PLUS loans at 10.5 percent.Congressional Budget Office projections of the 10-year borrowing rate show undergraduate loans would go up to 6.91 percent in the 2017-18 school year and then stay at 7.25 percent for the rest of the decade, The Education Trust, an advocacy group, reported.

Graduate and PLUS loan rates are expected to edge past what they’ve been in another two or three years.

President Barack Obama met with several senators earlier this week and urged them to find an agreement quickly.

“We’re glad to see that a compromise seems to be coming together,” White House press secretary Jay Carney said Thursday.

Obama opposed earlier Republican plans that used billions of dollars from the student loan program to pay down the deficit and wanted a deficit-neutral approach that would keep rates low, Carney said.

Burr said the single undergraduate loan rate was significant.

“We’re certainly not asking the subsidized students to be given a subsidy on the first $3,500 and then overcharge them on the next $2,000 to cover what we subsidize,” Burr said. “I think to the American people that’s insane, and we have now done away with that.”

Senators asked the Government Accountability Office for more data to get a clearer idea of what the cost of the student loan program actually is.

“We don’t have all the data we need,” said Harkin, who initially opposed the market-based plan but agreed to the final version.

Sen. Jack Reed, D-R.I., said Thursday that he would oppose the deal because it would increase future loan costs. Lauren Asher, president of The Institute for College Access and Success, called the deal “more a missed opportunity than a cause for celebration.” She said that it would cost more in the long term than leaving current rates in place.

Her organization proposed basing loan rates on the government’s cost of borrowing plus add-ons that cover the cost of the loan program.

“None of the long-term proposals that have been seriously debated have been tied to actual costs,” Asher said.

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